Impact of Leverage on Profitability of Textile Industry of Bangladesh: A Study on Listed Companies in Dhaka Stock Exchange

Nusrat Jahan, Md. Shahnawaz Mostofa

Abstract


This study is an endeavor to focus on the relationship between leverage and profitability of textile sector operating in Bangladesh. The aim of this study is to focus on the impact of leverage on profitability of textile companies operating in Bangladesh. Elucidating the role of leverage is one of the primary objectives of this research. The degree of operating leverage (DOL), degree of financial leverage, and degree of total leverage (DTL) have been computed and compared with return on investment (ROI). 10 textile companies as sample which is listed on the Dhaka Stock Exchange from the period 2007 to 2015 has been used for analysis. For data analysis, regression model is used. This study finds the use of leverage has statistically significant impact on firm’s profitability based on the level of riskiness inherent to each firm. To dig deeper the impact of leverage, some significant ratios have been calculated, which helped us to come to a conclusion that there is a significant relationship with DOL and ROI (P = 0.010). However, this study will help financial manager with the better understanding about the use of leverage.

Aus. J. Acc. Eco. Fin. Vol 3(2), October 2017, P 51-57

Keywords


Leverage; Degree of Operating Leverage; Business Risk; Degree of Financial Leverage; Financial Risk; Return on Investment; Textile Industries

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